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Reader Forum: Tapping into mobile app revenue with direct carrier billing

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PwC estimates the size of the global entertainment and media market will reach $2.2 trillion by 2017. By 2017, digital revenues will make up 47% of the entire market – with global online gaming revenues alone estimated to reach $30 billion.

With more than 17% of global internet traffic already coming through mobile devices, an increasing volume of digital entertainment and media is purchased and consumed through the mobile operator network infrastructure. However, the payments for such purchases are typically made with the use of credit cards, as this is often the only billing method supported by dominant marketplaces such as Apple’s App Store, Google Play and Windows Store (though some have started to slowly adopt carrier billing during the recent months in selected geographies).

Thus, mobile operators who have sold the devices and maintain the infrastructure to connect consumers to marketplaces are mostly left out of the “aftermarket” business of digital goods. One of the main reasons for this is that operators are not effectively competing with credit cards.

Why do credit cards beat operator billing?

From a merchant’s perspective, credit cards currently beat operator billing in almost every aspect. Premium messaging, which more operators still provide as their carrier billing enabler, was created over a decade ago for selling simple virtual content such as horoscopes, ringtones and wallpapers. Compared to credit cards that are mainly used today for selling content such as streaming music service subscriptions and virtual currency within games – Premium messaging technology is not competitive, both from a commercial and technical perspective.

To start with, developers expect a reasonable revenue-share from their payments. In the case of app store credit card billing, the industry standard revenue split is 70/30, with developers receiving 70% of the amount paid by end-users. For operator billing, in most countries, the developers are still left with only around half of the end-user price. Additionally, in app stores, developers are free to choose their own pricing, while operator billing allows developers to choose between only three to five fixed-price points, which do not go higher than $5 to $10 in most countries. Furthermore, payouts for credit cards take a month, while operators make payments to developers only after two to six months, depending on the country.

Still, carrier billing has its distinct advantages, the main ones being its significant reach (can cover any mobile phone user globally) and conversion superiority over credit cards. While there are approximately 1.5 billion credit card owners in the world, there are five billion phone owners. In emerging markets like Central and Eastern Europe, Latin America and Asia, operator billing is often the only way to collect payments from users. As for conversion, a recent study conducted by Flexion also indicates that operator billing has approximately 10-times better conversion rates than credit card payments due to its simplicity and ease of usage.

However, these two advantages alone are not sufficient for many developers to integrate operator billing due to the commercial and technical shortcomings mentioned earlier. So what can be done by mobile operators themselves to tip the scales?

Leveling the playing field with direct carrier billing

Direct carrier billing is defined as an operator billing solution which removes the need for transmitting payment information over visible or hidden SMS, and instead utilizes a data connection (either EDGE or 3G) to transfer payment information between operators, developers and end-users.

DCB makes operator billing significantly more attractive to merchants, both for technological and commercial reasons. While some of the commercial barriers for operator billing can also be fixed without implementing new technologies (such as shorter payout cycles and higher revenue shares), others (enabling dynamic pricing) cannot be solved without bringing billing technology up-to-date.

From the technological viewpoint, direct carrier billing connections should be designed to work fast from the ground up, as they provide new methods for user authentication and a so called one-click purchase flow on any mobile device. In this way, users can be directly authenticated and there is no need for them to send messages or insert PIN-codes. This means that fewer users abandon the payment.

In addition, DCB lessens concerns of privacy for end-users on smartphones. During installation of apps using old billing technologies, users are notified (both by the operating system and by anti-virus programs) that the app requires permission to read and send text messages. This might cause worries in end-users, and removing the obstacle reduces friction in the billing side of apps.

One-click purchasing also means that the payment seamlessly continues to the confirmation screen where the user has to confirm the purchase – without the need to enter their phone number or send messages, as all of the information needed to bill the user can be detected automatically. This again requires less typing and leads to a faster user experience.

Such a technological implementation – in conjunction with competitive commercial terms – would significantly increase operator billing uptake among developers who are looking to expand billing capability for their content beyond the mere 20% of the global population who have access to credit cards. Many large operator groups already have direct carrier billing solutions in place, but for those who have not yet started, now is the time to get moving.

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